Last month, we highlighted Aleafia Health (ALEF.V) (ALEAF) as a leading Canadian cannabis opportunity that was flying under the radar. We have been closely watching this burgeoning cannabis company and believe that recent developments make this a company that investors need to be watching.
Earlier this week, Aleafia Health completed the acquisition of Emblem Inc., a leading Canadian cannabis producer. This acquisition will immediately prove to be accretive and we are bullish on the growth prospects of the combined company.
One of the reasons why we are so favorable on this acquisition is due to the synergies that will be created between the two businesses. The companies have similar business models and we believe that the combination of them will be complementary in nature. Another reason why we are favorable on the combined company is due to it having a significantly larger reach and it being much better capitalized with more than $70 million in cash. Also, we believe that the combined company is attractively valued and has significant catalysts for growth.
Completes Acquisition of Emblem and Well Positioned for Growth
When you look at the acquisitions that Aleafia Health has completed, you will see that the company has been focused on acquiring businesses that generate significant cash flow and are attractively valued. Last year, Aleafia acquired Canabo Medical Clinic and when you combine this with Emblem’s GrowWise Health subsidiary, you have a leading Canadian clinic network with access to 40 national medical clinics and education centers that have served almost 60,000 patients.
We believe that Emblem and Canabo Medical Clinics represent strategic acquisitions of attractively valued companies. We have conducted research into these transactions and believe that these businesses were trading at a significant discount when compared to their peers. Also, when you look at the combination of Emblem’s GrowWise Health subsidiary and Canabo Medical Clinics, there is a lot to be excited about.
Now that the acquisition of Emblem is complete, Aleafia plans to capitalize on high-growth opportunities and leverage international expansion across four verticals: Cannabis Production, Health and Wellness, Cannabis Education and the Consumer Experience. Through this acquisition, Aleafia will be able to leverage Emblem’s extraction and product innovation to sell high-margin medical cannabis directly to its patient base for the first time. This represents a significant opportunity for Aleafia as well as its patient base, which can access Emblem’s differentiated high-margin derivative cannabis products.
The growth prospects of the combined company are significant and we think the market underappreciates this aspect of the story. The proposed acquisition creates a new Canadian medical cannabis leader that will operate the country’s largest national clinic network and will have improved operational scale with planned annual capacity of approximately 138,000 kg (including committed supply agreements), Canadian and expanded global distribution, and a robust branding and product development platform.
Over the next year, Aleafia will expand its reach and sell more products by leveraging Emblem’s Provincial agreements with Ontario, Saskatchewan, British Columbia and Alberta. The company also plans to gain national medical distribution through Emblem’s agreement with Shoppers Drug Mart and gain national retail distribution through Fire & Flower, Starbuds and the emerging OnePlant network.
On the international level, the acquisition of Emblem significantly improves Aleafia’s growth prospects and this is an important aspect of the story. The company will benefit from Emblem’s previously announced joint venture with German pharmaceutical wholesaler Acnos Pharma GmbH. We are favorable on the international cannabis opportunity and this relationship provides Aleafia Health with a stepping stone to jump into new markets. We will monitor how the team expands on this position and believe that this is an important part of the growth story.
A Company that Investors need to be Watching
Last month, Aleafia Health received a major honor and was named as the 2019 TSX Venture 50 top performing company of the year. Although the TSX Venture exchange has become a popular place for cannabis companies to list, 2019 was the first year that a cannabis company topped its annual performance rankings. This honor is a testament to the company’s ability to execute at a high-level as well as its significant growth prospects.
Although 2018 was a significant year for Aleafia Health, we expect 2019 to be even more important and are bullish on the growth prospects following the completion of the Emblem acquisition. The combined company has several major potential catalysts for growth and we believe that the market undervalues the cannabis clinic opportunity.
When we look at the combination of Aleafia Health and Emblem, we are very excited about the cannabis clinic opportunity. This aspect of the business is significant and it will be generating massive amounts of important medical cannabis patient data. We have already seen that Aleafia Health is capable of monetizing this data through Canabo Medical Clinics and believe that the acquisition of Emblem strengthens this opportunity for the company.
During the last few weeks, Aleafia Health has come off its highs and this is a trend that we are watching. Following the acquisition of Emblem, the company is well positioned for growth and we are bullish on the growth prospects going forward. To stay up-to-date with the combined company, please reach out to firstname.lastname@example.org with the subject line, Aleafia Health.
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